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Stock market prediction Year 2009

by Scott

One of the keys to wealth is being able to leverage your wealth. To allow our money to passively work for us and generate a return without having to spend significant amounts of time doing it. One of the best ways to do that has been in the stock market. Unfortunately we know that the stock market goes up and down. We have even had a few times when the stock market will crash. A stock market crash is defined as any time we have a sudden dramatic move downward in stock market pricing. Can anyone give a stock market prediction for 2009?

The Silicon Valley Blogger at TheDigeratiLife has recently been discussing the direction of the stock market. I was posting a reply that became very lengthy when I realized it would make a good blog post. Do we know where the stock market is going? Check out her post to see the foundations of my answer. I refer back to some of her comments and positions.

lsl 468x60v2 Stock market prediction Year 2009
A Discussion on Stock Market Prediction
I always find these discussions very interesting. First let me say I have absolutely no idea which way the market is going to go. If I did, I would buy a ton of options and then several islands with the profits icon smile Stock market prediction Year 2009 So I won't give you a stock market prediction, just my analysis and conclusions of possible outcomes. So now that we have out of the way. There are two ways to look at the markets - fundamentally and technically.

Stock Market Prediction - Fundamental Analysis
Several fundamental issues were brought up including the increasing earnings from companies. On the surface those looked great this past reporting cycle. The problem with most of them is they came from significant cost cutting and not improved sales. You can only cut so far before things before earnings stagnate. Based on current price to earnings (P/E) ratios we are more likely due to have a long slow go nowhere decade until earnings do improve. If I was a betting man I would suggest we are closer to a high for the year in the stock market than we are to a low. Expect August to finish lower and the rest of the year to do the same.

We all suffer from recency issues.
We value things that have happened most recently over those that happened 20 years ago or are only written in a history book. Most of us had our perception of the stock market formed in the bull market of the 90s. And while we have had 2 significant corrections since then, most of our psychology is rooted in the bull markets. We believe the crashes were blips on the radar. But to fully understand stock market history we must study stock market history. One really good source to do that is I have linked directly to their stock market history section. They have graphs that show the stock market back to the 1900s for the DOW and the 1960s for the S&P500. Take some time to study the 1930s on the Dow. While the Crash of 1929 is what most remember, notice that the bottom doesn't hit until 1932 with some pretty impressive rallies along the way. Remember that almost no one gave a stock market prediction that included that downturn.

Stock Market Prediction - The Second Great Depression?
I know a lot of people get upset when you compare today to the Great Depression. Things are very different now than during the Great Depression. I once heard it said that history more often rhymes than repeats. It may not exactly duplicate itself but we can always learn by studying history. In the Great Depression the stock market crash lasted for over three years. It consisted of a 90% decrease in the valuation of the stock market. People who bought near the top took nearly 25 years to reach that level again. I think for many of us 31 years would consist of long term investing. That is a long time just to break even (and that doesn't even take into account inflation).

djia19601980s Stock market prediction Year 2009

Graph provided by

So if we aren't going to repeat the Great Depression maybe we should look at another time frame? One that many of us can remember or our parents can was the 1970s. It actually stated in 1962 when we embarked on a bull market run that increased the stock market by about 80%. I won't bore you with the details. I think a picture is worth a thousand words.

lsl 120x600v2 Stock market prediction Year 2009We hit a high in 1966 and spent a decade trying to break above it and stay there. When it comes to the stock market, it always pays to keep things in perspective. You will find as many opinions as you want on the value of technical investing or fundamental investing. If you are going to be serious about the stock market or have a significant portion of your retirement in the stock market, you need to educate yourself. Read opposing opinions. Test what they say against what you see actually happening. I have found several resources that have been beneficial over the years.

Here is a brief list of the better ones.
Safehaven - They publish articles written from many different viewpoints. One viewpoint you won't find on display very often though is extreme optimism

Stockcharts This is a great site that includes graphs as well as educational articles. They tend to focus on the technical analysis side and provide a ton of tools, a good newsletter, and a great historical perspective.

John Mauldin - John is a best selling author, a newsletter publisher (free) and a paid to refer money managers. Not really sure how to describe the last part. He doesn't actually manage money but rather studies and recommends the best and brightest money managers to his clients. Sign up for both Thoughts from the Frontline and Outside the Box. I like John's writings because he doesn't mind presenting an opinion that is different from his. These two newsletters are not for the casual reader. If you are interested in learning about how to use the stock market to increase your wealth, you need to understand how it works. Take the time to read his stuff. He won't give you a stock market prediction but does give his observations and experience.

Most importantly don't depend on CNBC or CNN to give you the full picture. They get paid to bring entertainment and the highlights of a story. Understanding the stock market takes more than just listening to Breaking News segments. Every day on these channels they bring experts who give stock market predictions. Often they contradict themselves. Treat it as entertainment.

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 Stock market prediction Year 2009


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  • mlgreen8753

    Great information. I will keep this in mind as I make my decision in Mentor Capital (MNTR) stock. They seem to look good in terms of financial stability and one of the products they are associated with through a 20% stake in a privately held bio-tech company is a pre-market breast cancer treatment, which will likely be in demand year round, once it goes on the market.

  • TheWealthSquad

    I am not sure my information will help you make a decision on a pink sheet stock. I would suggest that you are gambling when you invest your money there. They are less regulated, have lower volume and generally are a riskier investment that the entire stock market.

    I have edited your comment to remove the company name :) as I don't think it is suitable for most people :)

    Have a great day

  • Financial Spread Betting

    Great post. It's not long left to find out how 2009 will end… will the rally continue?

  • stocktrader

    Excellent Article. Prechter has been in the business of market forecast for decades with varied success. He predicted the 80s bull market, predicted the 87 crash within weeks but then called it the top. Market rallied without him. Recently he wrote the book Conquer the Crash where he predicted the crash based on credit bubble deflation and it is quite accurate about what happened so far:

    He picked the 2007 top and he recommended short. He covered the short end of February 2009, about 10 trading days before March 10 bottom. The newsletter said bottom would come around March 9!! That was pretty damn good. On top of it he predicted the rally would be multi month and gave SP500 1000-1100 as the target and DOW 9000 and 10000. Now he thinks these targets are reached and is taking his chances to short again, but only with short term success so far:

    His two short positions hit stops after the market rallied back after few days of drops. It is interesting to see how he will do this time.

  • Scott

    Only Time will tell :) I think the rally is getting close to the end. It may make it through the end of the year though. I plan on updating my forecast every month to see where we are and if things have changed. Glad you enjoyed it.

  • stock market

    They are less regulated, have lower volume and generally are a riskier investment that the entire stock market.

  • markettimer

    I personally like to trade the double beta ETF's like the QLD long, and the QID when markets are heading south. These long/inverse ETF's have the added value of always allowing you to be long, and thus easy to trade in your retirment accounts. The inverse ETF were up huge in the 2007-08 decline, as are the bull ETF's up nearly 80% in 2009.

  • markettimer

    I personally like to trade the double beta ETF's like the QLD long, and the QID when markets are heading south. These long/inverse ETF's have the added value of always allowing you to be long, and thus easy to trade in your retirment accounts. The inverse ETF were up huge in the 2007-08 decline, as are the bull ETF's up nearly 80% in 2009.

  • MotiveWave Trader

    Prechter will admit himself that he tends to call things early. I’d say we’ve still got a bit to go on the down swing.
    But regardless, there’s always a trade out there, just remember to keep the emotion out of it.

  • TheWealthSquad

    Emotion will always get you into trouble. Its why people do differently in the real world than they do in paper trading. Though since this was written the stock market has basically gone nowhere. Up for a bit then right back down. You would have been better off in BFK or another bond fund.

  • Stock Tips

    I absolutely adore reading your blog posts, the variety of writing is smashing.This blog as usual was educational, I have had to bookmark your site and subscribe to your feed in ifeed. Your theme looks lovely.Thanks for sharing.
    Stock Tips

  • Trade4Target

    I really appreciate your post and you explain each and every point very well.Thanks for sharing this information.And I’ll love to read your next post too.

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